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KNOXVILLE, TN-A study by University of Tennessee economists finds that state and local governments could lose approximately $12 billion in annual sales tax revenue to Internet purchases by 2012. The International Council of Shopping Centers is using the report to push for federal legislation allowing states to make those collections, thus leveling the playing field for brick-and-mortar merchants.

ICSC leaders claim the study is “particularly ominous” given significant revenue shortfalls being faced by communities across the US. Many states require online retailers or their customers to pay sales tax on purchases, though current enforcement of those rules is weak.

“Clearly the results of the study points to the need for Congress to enact legislation that will allow states to collect taxes from out-of-state sellers while promoting simplification and fairness in the administration and collection of sales and use taxes,” says Betsy Laird, ICSC vice president of global public policy. The New York City-based group strongly supports the Streamlined Sales and Use Tax Agreement, which substantially simplifies state and local sales tax systems.

According to the Tennessee study, annual losses of state and local sales tax to electronic commerce will range between $11.4 billion and $12.7 billion through 2012. The study does not include taxes due from catalog, television and mail-order sales.

“Local vendors face a competitive disadvantage to e-commerce competitors as consumers browse shops on Main Street but then make their purchases online to evade the tax,” the UT professors stated in their executive summary. They add that the revenue implications could be much larger than for online sales alone, citing $6.8 billion lost to mail orders each year through 2012 as an example.

ICSC states that 23 states representing 60 million consumers have enacted laws implementing requirements of the Streamlined Sales and Use Tax Agreement. Several other states are awaiting congressional action to give complying states the authority to collect sales tax on out-of-state transactions.

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